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Signet Jewelers buying Zale for about $1.4 billion

By Katie Byard
Beacon Journal business writer

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Jewelry retailer Signet Jewelers Ltd., operator of Kay and Jared jewelry store chains, said Wednesday it will buy rival Zale Corp. of Texas for about $1.4 billion, including debt.

The move greatly expands Signet, already a market leader with 1,400 stores in the United States, and gives it entry into the Canadian market. Signet is based in Bermuda, but its U.S. division, Sterling Jewelers Inc., is headquartered on Ghent Road in Akron and has more than 2,600 employees in the city.

“We saw an opportunity here,” Signet Chief Executive Mike Barnes said in a telephone interview. “Zale is a great company with a fantastic heritage, just like Kay has a wonderful brand heritage... offering really complementary brands to what we have.”

Barnes said that Zale “is a company that had gone through some pretty tough times in the recession and the years following,” and he noted that Zale Chief Executive Theo Killion had led a turnaround at the Texas company.

Zale, which suffered as luxury spending dropped during the economic downturn, last year recorded an annual profit for the first time since 2008.

The plan is to keep the Zales brand name and for Killion to continue to run the Zale operation from Texas, Barnes said. There are no personnel cuts “on the horizon” in Texas or at the Akron headquarters as a result of the proposed acquisition.

Barnes, who was in Texas on Wednesday for the announcement, noted while he doesn’t foresee any immediate personnel cuts, “we are always changing the organization to meet the growing needs of what the future is about.”

“We think there are going to be some great opportunities out of this for our employees,” he said.

For example, he said, there may be opportunities for Zales employees to work in Akron and Sterling workers to fill jobs in Texas.

Barnes said he also does not see any immediate store closings.

The deal must be approved by shareholders and is subject to regulatory and other approvals.

Signet is offering $21 in cash per share of Zale, or about $690 million. That per-share amount is about 41 percent more than Zale’s closing price on the New York Stock Exchange on Tuesday. Signet said the deal has an “enterprise value,” which includes debt, of $1.4 billion.

Investors reacted positively Wednesday. Signet’s shares climbed $14.38 to close at $93.65. That’s up 49.5 percent from a year ago, including dividends. Zale’s shares were up $6.01 to $20.92. That’s up 332.2 percent from the $4.84 cents of a year ago.

Barnes said Signet reached out to Zale last year about combining the companies.

Killion, Barnes said, “has done a wonderful job. The exciting thing is there is still a lot of room to optimize, and we can be a big part of that, working together.”

He said that Zales stores carry popular brands, such as Vera Wang Love, while Signet stores carry Neil Lane Bridal, Tolkowsky Ideal Cut diamonds and other well-known brands.

“I believe brands are going to become more important,” Barnes said. “Brands create loyal following and they create trust... I want the brands to remain complementary to one another.”

Signet — through its Sterling division in Akron — operates more than 1,400 stores in the United States, primarily under the Kay Jewelers and Jared The Galleria of Jewelry brand names. Signet also has about 500 stores in the United Kingdom.

Zale, headquartered in Irving, Texas, outside Dallas, has about 1,680 stores, including Piercing Pagoda kiosks, in the United States, Canada and Puerto Rico.

Signet’s sales totaled $3.98 billion in fiscal 2013, with the U.S. division accounting for $3.27 billion of the revenues. Zale posted sales of $1.89 billion for the fiscal year that ended July 31.

Signet said the combination of the two companies is expected to generate about $100 million in annual “synergies” within the first three fiscal years. Barnes explained that some of that $100 million would come from cost savings, while some of it would be generated through “selling synergies,” Signet and Zale teaming up to sell specific merchandise.

Signet also said in a statement that the deal is expected to add to Signet earnings in the “high single-digit” percentage rate in the first fiscal year after the purchase closes. That contribution to earnings excludes acquisition costs.

Golden Gate Capital, which owns about 22 percent of Zale, is supporting the deal, Signet said.

Signet is making its biggest acquisition after jewelry was among the strongest categories during the holiday season, according to MasterCard Advisors SpendingPulse.

Signet is also taking on a rival that has seen shrinking sales growth for two years.

“Zale needs a jewelry merchant to run it and who better than Signet, which has been consistently successful over the years,” said Ken Gassman, president of the Jewelry Industry Research Institute in Glen Allen, Va. “This should assure the success of Zale.”

He also noted that Zale’s current non-executive chairman, Terry Burman, is the former chief executive officer of Signet.

In 2006, Signet ended talks to buy Zale after Zale’s board decided to keep the company independent.

Bloomberg News and the Associated Press contributed to this report. Katie Byard can be reached at 330-996-3781 or kbyard@thebeaconjournal.com.


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